Material - Mr. A. R. Krishnan - 21.8.2013

THE CHAMBER OF TAX CONSULTANTS
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Visit us at: Website: http://www.ctconline.org

Study Course on Service Tax for
Beginners 2013

7
th
meeting of 3 hours

Basic Framework and the
Concept of Service

Wednesday, 21
st
August, 2013

A. R. KRISHNAN
Chartered Accountant

BASIC FRAMEWORK AND CONCEPT OF SERVICE

TABLE OF CONTENTS
Particulars Page No.

1. Service Tax - A Great Opportunity for Professionals 1
Introduction 1
Nature of Services 1
Onerous task to keep pace 2
Service Tax A great future 2

2. Service Tax Overview 2
Need for a tax on services 2
Genesis of service tax in India 3
Selective vs. Comprehensive Coverage 4
Constitutional Authority 6
Nature of Service Tax 6
Law Governing Service Tax 7
GST Way Forward 8

3. New System of Taxation Basic Framework 9
Significant changes 9
Charge of Service Tax 3 conditions 10

4. What is Service 10
Definition 10
Activity 12
Consideration 12
Two distinct persons 15

5. Six transactions not regarded as Service 16
Six types of transactions 16
Transfer of title in goods / immoveable property 16
Deemed sale transactions [article 366(29A)] 19
Transactions only in money 20
Transactions only in actionable claim 21
Services provided by an employee to an employer 22
Fees payable to a court or a tribunal set up under a law for the time
being in force.
23

6. Declared Services 23
Nine types of transactions 23
Comparative table 24
1

A. R. Krishnan & Co.
Chartered Accountants

BASIC FRAMEWORK AND CONCEPT OF SERVICE

A. R. Krishnan
Chartered Accountant

1. SERVICE TAX - A GREAT OPPORTUNITY FOR PROFESSIONALS
Introduction
1.1 Service tax is a great opportunity for professionals. Under the negative
list regime where all services would be taxed unless they fall in the
negative list or are otherwise exempted, the service tax revenue looks
to be a big avenue for the government and a vista of practice for
professionals having great potential. It would also be an added advantage
for professionals in Industry too where there is acute dearth of personnel
having sound knowledge of service tax. Recent changes in the law has
given rise to a number of issues. With these changes there would be a
great need for professionals to advice and assist the assessees. A tax
professional with his training and experience is well-equipped to position
himself in the new role as an advisor and facilitator for due compliance of
service tax law.

Nature of Services
1.2 The nature of services which a professional could render are given below.
(i) Advisory services
(ii) Corporate training
(iii) Procedural compliance
(iv) Due diligence
(v) Support during department audit / investigation
(vi) Litigation SCNs
1
& Appeals - Personal representation
(vii) Compliance Certification

1
Show Cause Notice
2


Onerous task to keep pace
1.3 Service tax like excise is also administered more by way of notifications,
circulars and trade notices issued from time to time. The service tax law
is also fast changing like an FMCG (Fast Moving Consumer Goods)
product! A tax professional will have to keep himself abreast of the latest
notifications and trade notices in addition to the changes in law so as to
meet the client expectations. Thus, in order to render good value added
services in the area of service tax a tax professional has an onerous task to
keep pace with the latest.

Service Tax A great future
1.4 Thus, service tax is one area which is in its growth path having immense
future, both for the government for getting their revenues and for tax
professionals as an avenue of practice as well as positioning oneself in the
industry. It is said look before you leap but here the author advises the
tax professionals dont look just jump and grab the opportunity!

2. SERVICE TAX OVERVIEW
Need for a tax on services
2.1 Service tax is a tax of the future. The Supreme Court in All India
Federation of Tax Practitioners vs. Union of India (2007) 7 STR 625
(SC) explained the reason for imposition of service tax in the following
words:
4. Service tax is an indirect tax levied on certain services provided by certain
categories of persons including companies, association, firms, body of
individuals etc. Service sector contributes about 64% to the GDP. Services
constitute heterogeneous spectrum of economic activities. Today services
cover wide range of activities such as management, banking, insurance,
3


hospitality, consultancy, communication, administration, entertainment,
research and development activities forming part of retailing sector. Service
sector is today occupying the centre stage of the Indian economy. It has
become an Industry by itself. In the contemporary world, development of
service sector has become synonymous with the advancement of the economy.
Economists hold the view that there is no distinction between the consumption
of goods and consumption of services as both satisfy the human needs.
5. In late seventies, Government of India initiated an exercise to explore
alternative revenue sources due to resource constraints. The primary sources
of revenue are direct and indirect taxes. Central excise duty is a tax on the
goods produced in India whereas customs duty is the tax on imports. The
word goods has to be understood in contradistinction to the word services.
Customs and excise duty constitute two major sources of indirect taxes in
India. Both are consumption specific in the sense that they do not constitute a
charge on the business but on the client. However, by 1994, Government of
India found revenue receipts from customs and excise on the decline due to
W.T.O. commitments and due to rationalization of duties on commodities.
Therefore, in the year 1994-95, the then Union Finance Minister introduced
the new concept of service tax by imposing tax on services of telephones, non-
life insurance and stock-brokers. That list has increased since then.
Knowledge economy has made services an important revenue-earner.
Thus, service tax was a new milking cow for the Government.

Genesis of service tax in India
2.2 The imposition of service tax was in sequel to the Report of the Chelliah
Committee on Tax Reforms. On these recommendations Dr. Manmohan
Singh, the then Union Finance Minister, in his Budget speech for the year
1994-95 introduced the new concept of Service Tax and stated that,
There is no sound reason for exempting services from taxation, when
goods are taxed and many countries treat goods and services alike for tax
4


purposes. The Tax Reforms Committee has also recommended imposition
of tax on services as a measure for broadening the base of indirect taxes.
I, therefore, propose to make a modest effort in this direction by imposing
a tax on services of telephones, non-life insurance and stock brokers.
Thus, service tax was imposed on 3 services.

2.3 The baton then passed on to successive finance ministers who widened
the service tax net in their budgets. The Finance (No.2) Act, 1996 added 3
more services followed by the Finance Act, 1997 and Finance (No. 2)
Act, 1998, which added 12 services each, and the March towards
service tax went on every February. By 2012, the service tax net covered
119 different types of services. Post 2012, it covers all services except
some in the negative list or in the exempted category.

Selective vs. Comprehensive coverage
2.4 Depending on the socio-economic compulsions, each country evolved a
taxation system on services adopting either a comprehensive approach or
a selective approach. Under the selective approach only specified services
are taxable and under the comprehensive approach all services are taxable
unless they are specifically excluded. Upto 30.6.2012, India had a
selective approach to taxation of services. From 1.7.2012, on the eve of its
adulthood, India adopted a comprehensive approach to taxation of
services. Now taxation of services is based on what is popularly known
as Negative List of Services. Thus, India would also be joining the
bandwagon of advanced countries of comprehensively taxing all services
and excluding some specific services as against the present dispensation
a selective approach where only specified services are taxable. Truly, a
5


major step in taxing services in India on the eve of adulthood of the
service tax law [the 1994 law has competed 18 years!]. It wishes to say I
am 17 going on 18 but I need more money post 18!

2.5 The statistics of service tax revenue are as under:
Financial Year Revenue
Rs. Crores
No. of Services taxed
1994-95 407 3
1995-96 862 3
1996-97 1,059 6
1997-98 1,586 18
1998-99 1,957 30
1999-00 2,128 27
2000-01 2,613 26
2001-02 3,302 41
2002-03 4,122 51
2003-04 7,891 58
2004-05 14,200 72
2005-06 23,055 80
2006-07 37,598 100
2007-08 51,301 100
2008-09 60,941 106
2009-10 58,422 109
2010-11 71,016 117
2011-12 97,509 119
2012-13 1,32,697 All (except few)
2013-14
(Budgeted)
1,80,141 All (except few)

Source: Statistics of revenue collected are from the website www.indiabudget.nic.in
6


Constitutional Authority
2.6 The constitutional authority for service tax is derived from Entry no. 97
(which is the residuary entry) in the Union list of the Seventh Schedule to
the Constitution [Chartered Accountants Association and Gujarat
Institute of Civil Engineers and Architects vs. Union of India [2001] 252
ITR 53 [Guj.]; Tamilnadu Kalyana Mandapam Association v. Union of
India (2004) 167 ELT 3 (SC) and All India Federation of Tax
Practitioners vs. Union of India (2007) 7 STR 625 (SC)]. The legal back-
up is further fortified by the Constitution (88
th
Amendment) Act, 2003
which has introduced a new article 268A in the Constitution which states
that taxes on services shall be charged by the Central Government and
appropriated between the Union and the State. Simultaneously it has also
inserted a new entry in the List I Union List in the Seventh Schedule to
the Constitution which reads 92C. Taxes on Services. [All India
Federation of Tax Practitioners vs. Union of India (2007) 7 STR 625
(SC)].

Nature of service tax - an indirect tax akin to VAT on the supply of
services
2.7 The Supreme Court in All India Federation of Tax Practitioners vs.
Union of India (2007) 7 STR 625 (SC) explained the nature of tax as
follows:
6. At this stage, we may refer to the concept of Value Added Tax (VAT),
which is a general tax that applies, in principle, to all commercial activities
involving production of goods and provision of services. VAT is a
consumption tax as it is borne by the consumer.
7. In the light of what is stated above, it is clear that Service Tax is a VAT
which in turn is destination based consumption tax in the sense that it is on
7


commercial activities and is not a charge on the business but on the consumer
and it would, logically, be leviable only on services provided within the
country. Service tax is a value added tax.

Law governing service tax
2.8 There is no separate Act or legislation for service tax. Chapter V of the
Finance Act, 1994 (sections 64 to 96) and Chapter VA of the Finance
Act, 1994 (sections 96A to 96I) both the Chapters together are
hereinafter referred to as the Act, as amended from time to time,
provide for the levy of service tax and constitute the law governing
service tax. The Government has also notified the following rules :-
(i) Service Tax Rules, 1994
(ii) Service Tax (Advance Ruling) Rules, 2003
(iii) Cenvat Credit Rules, 2004
(iv) Service tax (Registration of Special Category of Persons) Rules,
2005
(v) Authority for Advance Rulings (Central Excise, Customs and
Service Tax) Procedure Regulations, 2005
(vi) Service Tax (Determination of Value) Rules, 2006
(vii) Service Tax (Publication of Names) Rules, 2008
(viii) Service Tax (Provisional Attachment of Property) Rules, 2008
(ix) Service tax Return Preparer Scheme, 2009
(x) Point of Taxation Rules, 2011
(xi) Service Tax (Settlement of Cases) Rules, 2012
(xii) Service Tax (Compounding of Offences) Rules, 2012
(xiii) Service Tax (Removal of Difficulty) Order, 2012
(xiv) Place of Provision of Services Rules, 2012
8


2.9 The Act is administered by the Excise department. The rate of service tax
presently is 12%. Further, the Finance (No.2) Act, 2004 has levied an
education cess @ 2% on the amount of the service tax w.e.f. 10.9.2004
and Finance Act, 2007 has levied an additional secondary and higher
education cess @ 1% on the amount of service tax w.e.f 11.5.2007.
Thus, presently the effective rate of Service Tax is 12.36%.

GST Way Forward
2.10 On 28.4.2010 while moving the Finance Bill, 2010, for consideration of
the House, the Finance Minister, Mr Pranab Mukherjee, said that the
Government is firmly committed to the goal of comprehensive tax reform
through the introduction of the Goods and Services Tax (GST). The
Central Government is closely engaged with the Empowered Committee
of the State Finance Ministers in finalizing the GST design. Thus very
soon the tax on goods and services would presumably be integrated as a
single tax known as Goods and Service Tax (GST). On 16.3.2012 while
moving the Finance Bill, 2012, the Finance Minister, Mr Pranab
Mukherjee, said that the Constitution Amendment Bill, a preparatory step
in the implementation of Goods and Services Tax (GST), which was
introduced in Parliament in March 2011 is pending before the
Parliamentary Standing Committee. Pending recommendations of the
Committee, drafting of model legislation for Centre and State GST in
concert with States is under progress. Further, he informed that the
structure of GST Network (GSTN) has been approved by the Empowered
Committee of State Finance Ministers and that GSTN will be set up as a
National Information Utility and will become operational by August
2012. The GSTN will implement common PAN-based registration,
9


returns filing and payments processing for all States on a shared platform.
The use of PAN as a common identifier in both direct and indirect taxes
will enhance transparency and check tax evasion.

3. New system of taxation basic framework
Significant changes
3.1 A virtual metamorphosis of the service tax law, i.e. Chapter V of the
Finance Act 1994 (i.e. the law governing service tax), is made w.e,f
1.7.2012. Some of the significant changes are:
(i) replacement of the definition section 65 by a new definition section
65B which inter alia for the first time defines the term service
[s. 65B(44)] a long felt cry of the taxpaying fraternity. Thus, the
definition of various services and the definition of taxable service
has been done away with. The new definition section also defines
the terms taxable territory and India;
(ii) replacement of the existing charging section 66 by a new charging
section 66B which inter alia mentions that the taxable event must
happen in the taxable territory;
(iii) introduction of the concept of exclusion of services by a negative
list and inclusion of services by a declared list;
(iv) determination of place of provision of service for both import and
export of services by a common set of rules called Place of
Provision of Services Rules, 2012.
(v) Laying down principles for interpretation of service descriptions
and taxability of bundled services (s. 66F) instead of the principles
classification of services (section 65A).

10


Charge of service tax 3 conditions
3.2 The new charging section 66B provides that there shall be levied a tax
@12% of the value of all services other than those specified in the
negative list provided or agreed to be provided in the taxable territory,
by one person to another. Thus, in order for the charge of service tax
to crystallise three conditions are required to be satisfied -
(a) there must be a service provided or agreed to provided by one
person to another;
(b) the service provided must not be specified in the negative list;
(c) the service must be provided in the taxable territory;
If the above conditions are satisfied the charge of service tax crystallizes
and the taxable event viz., the service (provided or agreed to be
provided) becomes impregnated with the levy. The measure of the charge
is 12% [exclusive of cess] of the value of services.

3.3 The term service is defined in the law and analysed below. The other
two aspects of the charge viz., what are the services specified in the
negative list and when would a service be considered to be provided in
the taxable territory are dealt with by other speakers.

4. What is Service?
Definition
4.1 The term service has been defined in section 65B(44) of the Act as
follows-
(44) "service" means any activity carried out by a person for another for
consideration, and includes a declared service, but shall not include
(a) an activity which constitutes merely,
11


(i) a transfer of title in goods or immovable property, by way of sale, gift
or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be a
sale within the meaning of clause (29A) of article 366 of the Constitution;
or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or
in relation to his employment;
(c) fees taken in any Court or tribunal established under any law for the time
being in force.
Explanation 1. For the removal of doubts, it is hereby declared that nothing
contained in this clause shall apply to,
(A) the functions performed by the Members of Parliament, Members of State
Legislative, Members of Panchayats, Members of Municipalities and
Members of other local authorities who receive any consideration in
performing the functions of that office as such member; or
(B) the duties performed by any person who holds any post in pursuance of
the provisions of the Constitution in that capacity; or
(C) the duties performed by any person as a Chairperson or a Member or a
Director in a body established by the Central Government or State
Governments or local authority and who is not deemed as an employee before
the commencement of this section.
Explanation 2. For the purpose of this clause, transaction in money shall not
include any activity relating to the use of money or its conversion by cash or
by any other mode, from one form, currency or denomination, to another
form, currency or denomination for which a separate consideration is charged.
Explanation 3. For the purposes of this Chapter,
(a) an unincorporated association or a body of persons, as the case may be,
and a member thereof shall be treated as distinct persons;
(b) an establishment of a person in the taxable territory and any of his other
establishment in a non-taxable territory shall be treated as establishments of
12


distinct persons.
Explanation 4. A person carrying on a business through a branch or agency
or representational office in any territory shall be treated as having an
establishment in that territory.

4.2 Thus, a service means
any activity
for consideration
carried out by a person for another
but excludes specified transactions
and includes a declared service.

Activity
4.3 The term activity is a term of very wide connotation and could be active
or passive and would also include forbearance to act.

Consideration
4.4 Consideration means everything received (both monetary and non-
monetary) in return for provision of service. The Education Guide issued
by the Central Board of Excise & Customs
2
clarifies that recharges
between establishments of an entity located in a non-taxable territory and
taxable territory would amount to consideration
3
. The concept of activity
for consideration involves a contractual relationship. The activity and the
consideration must be reciprocal. If there is no contractual reciprocity
between an activity and consideration an activity would be considered as
done without consideration even if the activity leads to accrual of gains to

2
The CBEC has issued an Taxation of Services An Education Guide for better understanding of the new
system of taxation. The para references given in footnote of this article refer to para number in the said
Education Guide.
3
Para 2.2.1
13


the person carrying out the activity
4
. However, consideration maybe
provided by a person not receiving the benefit of the service so long as
there is a link between the provision of service and the consideration e.g.
holding company may pay for services that are provided to its associated
enterprises
5
.

4.5 Thus, donations; gifts; free chartities; grants given for research where the
researcher is under no obligation to carry out a particular research for the
grantor; awards for personal contribution / achievements; ex-gratis
payments received by a musician playing in a street from passers-by;
pocket money; alimony for divorce; would not be consideration since
there is no activity done at the desire of the payer. However, research
grants given where the researcher provides the IPR rights in the outcome
of the research to the grantor; or where people at large are invited to
contribute to open software development (e.g. Linux) and getting an
amount if their contribution is finally accepted, would be activities for
consideration
6
.

4.6 Advances and deposits for agreeing to perform a service is consideration
unless the deposits are returnable on completion of provision of service
(e.g. security deposits). If tax is paid on the deposits received for agreeing
to perform a service, then on return of the deposit on cancellation of an
agreement the tax-payer would be entitled to refund to the extent
specified in the law. However, security deposits forfeited for damages
done by the receiver of service in the course of receiving a service not

4
Para 2.3
5
Para 2.3.3
6
Paras 2.2.2, 2.2.7 and 2.3
14


being relatable to provision of a service would not amount to
consideration
7
.

4.7 Statutory fines and penalties would not amount to consideration
8
but
demurrages payable for use of services beyond the period of initially
agreed upon e.g. retention of containers beyond normal period is
consideration and is covered by rule 6(1)(x) of the Service Tax
(Determination of value) Rules, 2006 (Valuation Rules)
9
. Amount
received in settlement of a dispute per se may not be consideration but if
the amount is a portion of the consideration or the dispute itself pertains
to consideration for provision of a service then it would be part of
consideration
10
.

4.8 The Education Guide clarifies that excess payments made as a result of a
mistake if returned is not consideration but if retained is consideration
11
.
This clarification is however, subject to question in the authors view.

4.9 Non-monetary consideration would have to be valued at equivalent
money value of the consideration and if that is not ascertainable, then rule
3 of the Valuation Rules provides for the basis of valuation as follows:
(i) First, on the basis of gross amount charged for similar service
provided to other person in the ordinary course of trade; and
(ii) Where value cannot be so determined, the equivalent money value
of such consideration not less than the cost of provision of service.

7
Para2.3.2 point nos. 2-6.
8
Para 2.3.1
9
Para 2.3.2, point no. 8
10
11
15


Two distinct persons
4.10 A service must be provided by one person to another a requirement of
two distinct entities. A service provided by a person to self is not taxable
e.g. inter-branch transactions where branches are located in India. There
are two statutory exceptions to this proposition:
(i) an establishment (e.g. branch, agency or representative office) of a
person located in the taxable territory and another establishment of
such person located in a non-taxable territory will be separate
persons. Example, a transaction between the Indian branch of a
company and its overseas head office would be considered as
service.
(ii) an unincorporated association or body of persons and the members
thereof are also treated as distinct persons. Thus, the intention is
to pierce the doctrine of mutuality and tax transactions between
members and a club of a members club.

4.11 The Education Guide clarifies that in case of in case of unincorporated
Joint Ventures (JV) / profit sharing Association of Persons (AOP), the
services provided by individual persons constituting the JV / AOP to the
AOP and by the JV / AOP to third parties would be taxed separately.
However, credit would be available to the JV / AOP of the tax charged by
/ paid to the persons constituting the JV / AOP as per the Cenvat Credit
Rules
12
.

12
Para 2.4.3
16


5. Six transactions not regarded as a service
Six types of transactions
5.1 The following six transactions would not be regarded as service:
(i) any activity that constitutes only a transfer of title in
(a) goods or
(b) immovable property
by way of sale, gift or in any other manner;
(ii) any transfer, delivery or supply of goods which is deemed to be a
sale within article 366 (29A) of the Constitution;
(iii) a transaction only in money. A transaction in money shall not
include any activity relating to
(a) the use of money (e.g. lending) ; or
(b) Conversion of money, by cash or any other mode, from one
form, currency or denomination to another form, currency or
denomination (e.g. Conversion of Indian to foreign currency
and vice versa)
for which a separate consideration is charged.
(iv) a transaction only in actionable claim.
(v) any service provided by an employee to an employer in the course
of the employment; and
(vi) fees payable to a court or a tribunal set up under a law for the time
being in force.
Each of the above exclusions are explained below.

Transfer of title in goods / immoveable property
5.2 An activity that constitutes only transfer of title in goods / immoveable
property is excluded from the definition of service. The transfer must be
17


of title i.e. ownership and not merely of custody or possession i.e.
renting or giving on hire goods or immoveable property.

5.3 Further, a transaction may involve provision of service as well as transfer
of title in goods / immoveable property. Such transactions could take two
forms
(i) separate discernible transactions i.e. where a transaction for
provision of service and transfer of title in goods / immoveable
property, although maybe associated, are discernibly separate
transactions; or
(ii) composite transactions i.e. where the element of provision of
service and transfer of title in goods / immoveable property are
inextricably linked to each other.
The test whether it is a former or the latter one depends upon whether the
parties to the contract intend to or have in mind that separate rights arise
out of the constituent contract of sale and contract of service.

5.4 If
(a) the transactions, although associated, are separate discernible
transactions for transfer of title in goods / immoveable property and
provision of services then the portion / transaction relating to
transfer of title in goods / immoveable property would not be liable
for service tax and the transaction for provision of service would be
liable for service tax (subject of course to other conditions of
taxability being fulfilled).
(b) the transaction is a composite transaction, then the transaction
would be regarded as service or sale depending on what is the
18


dominant nature of transaction. However, please refer exceptions
in para 5.9 below.

5.5 The Education Guide has clarified that notification no. 12/2003 dated
20.6.2003 that granted deduction of value of goods sold in the course of
provision of service has been deleted since the essence and intent of the
said notification is fully captured in the definition of service itself by
way of excluding a transaction in the nature of transfer of title in goods
and deemed sales from the definition of service
13
.

5.6 The Education Guide has clarified that transfer of title in securities
which are included in the definition of goods [section 65B(25)] by way
of sale, purchase or redemption on principal to principal basis is excluded
from service
14
. Thus purchase or redemption / sale of mutual funds
would not be liable for service tax
15
. However, it is clarified that entry or
exit loads are in the nature of consideration for documentation covering
initial expenses, asset management, etc. Hence service tax would be
leviable on such entry and exit loads
16
.

5.7 Transfer of a going concern, as a whole or an independent part thereof
though not in the nature of sale of goods or immoveable property is
exempted
17
.

13
Para 2.6.4
14
Para 2.6.7
15
Para 2.6.9
16
Para 2.6.10.
17
Notification no. 25 /2012 dated 20.6.2012 (Entry 37).
19


Deemed sale transactions [article 366(29A)].
5.8 Any transfer, delivery or supply of goods which is deemed to be a sale
within article 366 (29A) of the Constitution is excluded from the
definition of service. These are six types of transactions:
(a) Sale of goods otherwise than in pursuance of a contract.
(b) Transfer of property in goods involved in the execution of a works
contract.
(c) Delivery of goods on hire purchase or payment by installments
(d) Transfer of the right to use goods (where the effective control and
possession is transferred).
(e) Supply of goods by unincorporated association to a member
thereof.
(f) Supply of food or drink by way of, or as part of, any service or in
any other manner (catering contracts)

5.9 The only two exceptions to the treatment of a composite transactions
based on the dominant nature test as per para 5.4 above are:
(a) works contracts [article 366(29A)(b)]; and
(b) catering contracts (i.e. supply of food or drink by way of, or as part
of, any service or in any other manner) [article 366(29A)(f)]
where the goods portion is considered as a deemed sale and accordingly
excluded from the definition of service and the service portion is a
declared service liable for service tax. Thus in these two transactions,
the dominant nature test will not apply.

20


Transactions only in money
5.10 A transaction only in money is excluded from the definition of service.
Money is defined in section 65B(33) to mean legal tender, cheque,
promissory note, bill of exchange, letter of credit, draft, pay order,
traveller cheque, money order, postal or electronic remittance or any
such similar instrument but shall not include any currency that is held for
its numismatic value.

5.11 A transaction in money shall not include any activity relating to
(a) the use of money (e.g. lending) ; or
(b) Conversion of money, by cash or any other mode, from one form,
currency or denomination to another form, currency or
denomination (e.g. Conversion of Indian to foreign currency and
vice versa)
for which a separate consideration is charged [Explanation 2 to s.
65B(44)].

5.12 The Education Guide clarifies that a transaction per se in money is
excluded from the definition of service but any activity related to a
transaction in money for which a separate consideration is charged would
not be treated as a transaction in money
18
. Thus, the principal amount of
(a) deposits in or withdrawals from a bank account;
(b) drafts and pay orders purchased from a bank;
(b) loans advanced or repaid;
(c) currency exchanged say, with a foreign exchange dealer;
(d) investment of funds made by a person with another

18
Para 2.8.5.
21


are transactions in money. But the charges made by a bank as
commission charged for preparation of the bank draft / pay order or the
commission charged by the foreign exchange dealer for conversion
services or a service fee / commission charged for managing investments
is taxable and would not be a transaction in money
19
. Similarly,
commission charged by a promoter (foreman) of a Chit Fund is taxable
and is not a transaction only in money
20
. A partner being admitted in a
partnership for a share of profits is transaction in money
21
. Debt
collection services or credit control services would not be considered to
be transaction only in money
22
.

5.13 However, the Delhi High Court in Delhi Chit Fund Association v. Union
of India (2013) 30 STR 347 (Del.) has held that commission paid to a
foreman of chit business which is a transaction in money falls under the
exclusionary part of the definition of service u/s 65B(44) and hence is not
liable for service tax.

Transactions only in actionable claim
5.14 A transaction only in actionable claim is excluded from the definition
of service. As per section 3 of the Transfer of Property Act, 1882
actionable claims means a claim to
(i) any debt, other than a debt secured by mortgage of immovable
property or by hypothecation or pledge of movable property; or
(ii) to any beneficial interest in movable property not in the
possession, either actual or constructive, of the claimant,
which the Civil Courts recognize as affording grounds for relief, whether

19
Paras 2.8.1, 2.8.3, 2.8.4 & 2.8.5
20
Para 2.8.2. See para 5.13 below.
21
Para 2.8.4
22
Para 2.8.6
22


such debt or beneficial interest be existent, accruing, conditional or
contingent. The Black's Law Dictionary defines 'beneficial interest' as
follows-
A right or expectancy in something (such as a trust or an estate), as opposed
to legal title to that thing. For example, a person with a beneficial interest in a
trust receives income from the trust but does not hold legal title to the trust
property
Therefore 'beneficial interest in moveable property' is a right or
expectancy in a moveable property like right to receive income accruing
from a moveable property.

5.15 An unsecured debt or a right to participate in a lottery draw is an
actionable claim
23
. But a voucher entitling a person to avail health
services in a club or recharge vouchers issued by service companies
enabling a person to enjoy a telephone service is not a beneficial interest
in moveable property and hence not an actionable claim
24
. Thus,
assignment of an unsecured debt would not be liable but a service fee or
charge collected in the course of assignment of the debt would be liable
for service tax
25
.

Services provided by an employee to an employer
5.16 Only services that are provided by the employee to the employer in the
course of employment are outside the ambit of services. Thus, amount
received on pre-mature termination of employment is not liable for
service tax being received for services provided in the course of
employment
26
. But, if an employee provides his services on contract basis

23
Para 2.8.7
24
Paras 2.8.11 & 2.8.12
25
Para 2.8.8
26
Para 2.9.3
23


to an associate company of the employer, then this would be treated as
provision of service
27
.

5.17 Explanation 1 to section 65B(44) however clarifies that 'service' does not
cover functions or duties performed by Members of Parliament, State
Legislatures, Panchayat and Municipalities or any other local authority or
any person who holds any post in pursuance of the provisions of the
Constitution or any person as a Chairperson or a Member or a Director in
a body established by the Central or State Governments or local authority
and who is not deemed as an employee.

Fees payable to a court or a tribunal set up under a law for the time
being in force.
5.18 Fees payable to a court or a tribunal set up under a law for the time being
in force is excluded. Fees paid to Government departments would be
excluded under the negative list [section 66D(a)].

6. Declared services [section 66E]
Nine types of transactions
6.1 Nine types of transactions specified in section 66E would be considered
to be a service - termed as declared service. They are :
(1) r
enting of immovable property;
(2) c
onstruction of a complex, building, civil structure or a part thereof,
including a complex or building intended for sale to a buyer,
wholly or partly, except where the entire consideration is received

27
Para 2.9.1
24


after issuance of certificate of completion by a competent
authority;
(3) t
emporary transfer or permitting the use or enjoyment of any
intellectual property right;
(4) d
evelopment, design, programming, customization, adaptation, up
gradation, enhancement, implementation of information technology
software;
(5) a
greeing to the obligation to refrain from an act, or to tolerate an act
or a situation, or to do an act;
(6) t
ransfer of goods by way of hiring, leasing, licensing or any such
manner without transfer of right to use such goods;
(7) a
ctivities in relation to delivery of goods on hire purchase or any
system of payment by instalments;
(8) s
ervice portion in execution of a works contract;
(9) s
ervice portion in an activity wherein goods, being food or any other
article of human consumption or any drink (whether or not
intoxicating) is supplied in any manner as part of the activity.

6.2 Comparative Table
25


Declared Service
[Sr. No. of para
6.1]
Coverage prior to
1.7.12
Coverage
from
1.7.12
Some Remarks / Changes
(1)
[Renting]
S.65 (105) (zzzz)
r.w. S.65 (90a)
S.66E(a)
r.w. S.65B
(41)
R
enting of Vacant land and for sports
and entertainment covered now.
L
ease of land given to parking
contractor now liable.
P
arking charges for general public -
exempt upto 31.3.2013. Thereafter
liable.
(2)
[Sale of flats/
offices]
Explanation to S.
65 (105) (zzq)
S.66E(b) E
xclusion of less than 12 unit complex
deleted.
E
xclusion for personal use deleted
except for a bungalow not forming
part of a complex.
P
reviously O/C by government
authority or certificate by an
architect, engineer, licenced surveyor
sufficient. Now CC by government
authority compulsory. In the event
such CC is not required under law,
then certificate from architect,
engineer, licenced surveyor sufficient.
26


(3)
[IPR Services]
S.65 (105) (zzr), S.
65 (55b) IPR
excluding Copy
right
S. 65 (105)
(zzzzt) Copy
right in films and
sound recording
S.66E(c) P
reviously, IPR under Indian law
liable. Technical Know-how not
covered. Now, Technical Know-how
also covered.
C
opy right in cinematograph films -
(i) upto 31.3.2013 exempt
(ii) w.e.f 1.4.2013 only theatrical
rights exempt
(4)
[IT software
services]
S.65 (105) (zzzze)
r.w. 65(53a)
S.66E(d) S
oftware Licencees taxability is an
issue refer para 6.4.4 of Education
Guide
(5)
[Agreeing to do,
tolerate or not to do
an act]
Not covered S.66E(e) N
on compete agreements covered
E
xclusivity payments covered
P
ayments for grant of monopoly rights
covered.
(6)
[Supply of tangible
goods]
S.65 (105) (zzzzj) S.66E(f) No change
(7)
[Activities in
relation to hire
purchase /
installment
payment contract]
S.66E(g)
27


(8)
[Works contract
services]
S.65 (105) (zzz) S.66E(h)
works contract defined to include
work contract of movable property as
also e.g. maintenance & repair,
contract for construction of a bus-
body, etc.
C
omposition scheme deleted but
reckoning value of services on
presumptive basis introduced.
(9)
[Catering contracts]
S.65 (105) (zzzzv) S.66E(i) No Change except
(i) that reckoning value of services on
presumptive basis introduced;
(ii) all air-conditioned Restaurants
covered w.e.f. 1.4.2013 even if not
holding liquor licence.

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THE CHAMBER OF TAX CONSULTANTS

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